Ehud Olmert, Israel's former prime minister, has been dramatically cleared of the corruption charges that forced him from office in 2009, setting the stage for a potential political comeback.

The Jerusalem district court confounded expectations by acquitting him on two counts of fraud at the end a two-year trial on Tuesday.

Mr Olmert emerged from the courtroom largely vindicated but not entirely untarnished after a three-judge panel convicted him on a minor charge of breach of trust.

The court ruled that, while serving as Israel's interior minister, he had improperly bestowed favours on a colleague.

The verdict means that Mr Olmert is the first former prime minister ever to be convicted on a corruption-related charge. Even so, he is almost certain to escape prison time and the stain on his honour is seen as a relatively minor one.

Mr Olmert was visibly relieved as the verdict was read out. He has long protested his innocence, saying that he was hounded out of office by overzealous prosecutors pursuing a political vendetta.

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His resignation in 2009 dealt a potentially significant blow to the Middle East peace process, with Mr Olmert maintaining that he had come closer than any of his predecessors to securing a formal deal with the Palestinians.

While the claim may be overstated there is no doubt that Mr Olmert's legal travails hampered progress, with the Palestinian leadership saying that it held back from signing a deal after it became apparent that he was unlikely to survive in office.

Political allies from Mr Olmert's Kadima party demanded the resignation of Moshe Lador, the state prosecutor, after the verdicts were announced.

"The Israeli public finally understands that a prime minister was impeached for nothing," Yoel Hasson, Kadima's chairman, was quoted as saying.

"This is a dark day for the state prosecution and the state prosecutor must seriously consider what's next for him."

The prosecution's case rested on two principal charges accusing Mr Olmert of double-billing charities for overseas fund-raising trips and taking bribes in the form of envelopes stuffed with cash from an American businessman. The court rejected the prosecution's arguments on both counts.

Friends of Mr Olmert said the way had now been cleared for an unlikely political rehabilitation.

"I hope this acquittal will pave his way back to politics," Mr Hasson said.

The former prime minister, however, still faces a separate trial where he is one of 13 defendants facing charges related to a bribery scandal surrounding a controversial real estate project in Jerusalem.

With a verdict not expected for another year, any comeback Mr Olmert may be contemplating will have to wait until after Israel's next general election.